Acquisitions Anonymous - #1 for business buying, selling and operating - $13.9mm Erosion Control Business - $30mm Digital Marketing Business / e30

Episode Date: May 31, 2021

Two deals analyzed this wee:- a $13.9mm erosion control business in the southeast- $30mm Digital Marketing Business we think is in the political advertising business Enjoy!-----* Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.* Do you enjoy our content? Rate our show!* Follow us on twitter @acquanon Learnings about small business acquisitions and operations.-----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, Morgan Tate and more.-----Additional episodes you might enjoy:#62 Two Landscaping Businesses for Sale - Mike Loftus CEO of Connor's Landscaping#66 Analyzing Software Businesses for Sale with Steve Divitkos, experienced industry CEO#42 $900k Moving and Storage Company / $500k Rural Mini-Storage#61 Two Manufacturing Businesses for Sale - Brent Beshore - Founder and CEO at Permanent Equity#24 $5mm pool services and lifeguard staffing co / $2mm septic services business -  featuring baller @WilsonCompanies as a special guest!#45 $800k/yr cleaning business in Midland, TX / a $565k/yr window cleaning business in San Antonio, TX #48 Two Landscaping Businesses for Sale - Mike Botkin of Benchmark Group--- Support this podcast: https://anchor.fm/dealtalk/supportSubscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

All right, welcome to Acquisitions Anonymous. It's Friday morning, hanging out with my two favorite M&A buddies, Bill and Mills. Good morning to you, Mills. Good morning. How's it going? Great. Just to catch everybody up, this is our podcast we do every week. It's called Acquisitions Anonymous. The three of us are not anonymous, but the deals often are. And we talk about two small businesses for sale each week. We analyze them. And along the way, as I've been told by people on the internet, Bill, They learn stuff from what we say or what we say that's wrong, one of the two. But people are apparently learning. And then they apply for jobs with us, which I got a listener apply for a job last week, which is awesome.

Love it. I think I've lost some friends based on this podcast. That's where I'll go. It's just, look, guys, just a matter of time until I get canceled. So let's keep it going as long as we can. And maybe us by association now. No, I was actually thinking today somebody, you know, is joking with somebody on Twitter. And I was looking at it.

I was like, I've written 28,200 tweets and I haven't been canceled yet. Like that is a streak that I want to keep going. Well, I mean, you don't know. Maybe one of those 28,000 tweets is going to be, you know, taboo in a year or two from now. So you still got hope. Wait a second. Okay. All right.

Let's not go to a dark place to start this off. Cool. So we have two deals today. And Mills, you have our first one about the incredibly sexy, exciting world of erosion control. So tell us all about it. Yeah, fasten your seat belts, everybody. This one has actually, I think it's super interesting. These are the kind of things I get excited about. But we have a teaser on this one. But I've had a conversation. It's one that I'm looking at with a friend. And so I do have some more information kind of beyond the teaser. But this is an erosion control services business in the Southeast. Their 2021 estimated revenue is 13.9 million. 2021 estimated EBIDA of right around 2.5 million. And the company serves the erosion and sedimentation control market.

Their target market includes clients needing erosion control and debris removal services, which typically include large home builders and construction companies. They have over 115 clients. They provide consultative services to ensure client sites are in compliance with erosion control, sediment containment, cleanup, hydroceeding, pond remediation, and more. We have kind of a handful of different

pieces of information, but the revenue mix is about 38% sediment barriers, 29% debris removal, 14% construction egress, and 19% grassing and other kind of services. So you think about if you're riding by any type of construction site where

you know, dirt or clay or sand or mud would end up in the street or in, you know, the road or into, you know, a drain, those little kind of silt fences that you see, those black fences that have stakes in them, or if you ever see hay bales stacked around, spiked in around drains, if you see that grass that gets kind of like sprayed, you know, around embankments that look like they would erode, all those kind of things. It's actually regulated, at least in all the markets that I'm familiar with, it's pretty highly regulated because you're prohibited from letting your construction waste and run off and dirt end up in the stormwater system.

They're in the southeast. They have three locations that are across. this certain state that they're in. And they, let's see, they've got about 137 employees. So pretty big employee base with, you know, kind of pushing 14 million in revenue. But yeah, you guys fire away. Ask some questions. So, Mills, I've got a question. Is this one of those businesses that looks great when residential housing is booming and then ends up in big trouble when we have 2008? Is it cyclical like that? Like another business like I love is dumpster businesses.

had a dumpster rental folks on the prior podcast. But it's one of those things that when construction tanks, you don't have a lot of trash for dumpsters, a lot of construction trash. Is this the same type of thing or is it a little bit more stable than that? It I think is certainly that right now. So, I mean, what intrigues me about it is the potential to diversify away from some of that. So, I mean, this business has grown pretty substantially. 2018, they did $6.3 million in revenue. 2019, they did $8.5.20. 2020, they did 9.7. In 2021, they're estimating 13.9. The kicker, I mean, everybody loves projections, right, and loves to beat up on projections. But I had a conversation with the broker. It's not contracted revenue, but they're anticipating 18 million of revenue in 2022. This is absolutely going to be cyclical under its current composition. And they actually have pretty significant customer concentration risk. They've got about 65 to 70 percent with their top five customers. customers and they're all, you know, large kind of track home builders in one geographic market,

you know, one state. I don't know yet about the debris removal and what the overlap is. You know, it could be that you're like, oh, wow, debris removal is 30% of the revenue. But what if it's all from two of your top five largest customers who, you know, if they're not building houses, you're not putting up erosion fences, but you're also not hauling debris. So I have a buddy that is in a similar business, but same kind of dynamics. And it's a great business. He actually does what these guys do, but instead of erosion control, what they actually do is the plumbing for tract homes.

And in the right markets, like, it's super good because what's cool is that your competition is very limited, the number of people that could do, in his case, 50 homes in parallel at the same time for two builders is like pretty pretty limited you know he has basically one competitor and then there's five six well here in texas there's more than that there's like a dozen developers building homes here in santonio um so it turns out to be a really good thing and that's like i think where i would want to dig in like is there some aspect of what this business is that limits the competition and helps you be what is pretty profitable right they're doing two and a half million ibada on 14 million, that's a pretty good contracting business at scale.

There's few that are doing that well. Yeah, yeah, absolutely. I mean, my thought on it is, you know, I know their customer list, and I know the folks who aren't on their customer list. And so you could mitigate some of the customer concentration, you know, by going in and really focusing on winning that work with the sales team, with relationships, with customer service. But that doesn't help with the broader residential,

concentration. And so this stuff is just as necessary, if not more necessary, in a commercial environment. So, you know, anytime a parking lot is getting paved, you've got to have a retainage pond. And these guys would come in and put in erosion control in retainage fonts. It doesn't insulate you from the macro cycles that hit all of construction, but it would certainly, you know, help you, I think, smooth out some of it. At least that's kind of my thesis. But you would still have a good bit of exposure on a business that has been growing very quickly because it is a labor-based business and a business that is anticipating a lot of future growth. So that all points to me that there's probably going to be a significant delta between what they expect from a valuation perspective

and what somebody is actually willing to pay. They're going to want credit for their growth, for their growth trajectory, for, you know, how good they feel about it. And everybody else is going to be discounting it and saying, you've got major customer concentration. You could get your head chopped off if the market corrects hard enough. And, you know, you're probably on a shaky footing in terms of just your organizational structure because of how quickly you've grown. Yeah.

That's the two sides of the story. Well, so this brings up something I've been going to talk about, which is sometimes you see things when you're looking at deals that look like they break the rules of, oh, you should be penalized for this, but then when you double click on them, that's really not the case, right? And so I think, for example, you know, the macro environment is something to super worry about with this business. Like, what's going to happen to new home starts? And I look back at my buddy's business and what it did in the last kind of real, few real estate downturns. And like, as long as he was good at operating and managing towards

his highly variable cost, which is labor, like he turned out just fine. Right. And so, So I think this is one of those things like, as somebody would dig into this, I would really dig into, oh, okay, I'm breaking some rules here, but is it okay? And my gut is based on what I've seen in my buddy's business, you'll be just fine. You just have to make sure you're paying attention to that micro environment and not letting it run you, so to speak. Yeah. Yeah, I agree. Hey, Mills, one thing, when we've talked about these types of businesses in the past, the two things that you often bring up are transferability, you know, especially when there's customer concentration, are they really? relationships here with the owners? Is the business going to stay with the new owner, the contracts, rather? And then the other one that you often bring up is that I think this business avoids, which is probably pretty cool, is licensing. You know, you don't need to be a licensed architect or plumber or whatever because you're just stacking bails ahead, I would think, right? So is this one of those interesting construction adjacent things that actually does not have the

licensing risk? Those are great questions. On the first, on the transferability and relationship, ships. I mean, this is totally a buyer business fit. What you harp on a lot, Bill, is that, you know, if somebody were a searcher from Texas and they were looking for a company to buy and they didn't have any connections, sorry, I have a train going by my office. Maybe that'll get edged out. And we're leaving it in. So everybody can imagine, everybody can imagine like a hobo going down. I'm riding the rails, baby. Go ahead. If somebody were just coming here with no relationships, no connections into the residential builder market, I mean, you would really want to double check. Where do the relationships lie? The other detail that I haven't shared is that there's three owners of this business, and they're all younger than 50. So you may get some more mileage out of them, but until you sit down and have a conversation, until you understand their expectations,

and that may not always pan out the way that you think and they think, right? So there would have be a lot that gets explored on that. But I think that there's probably some transferability for folks who already have some relationships, which I would be in that category. On licensing, you're right. I mean, this is something that gets designed by an architect, an engineer, a stormwater, expert, and they're saying, hey, these things have to be applied. But it's not like you're dealing with gas lines or, you know, high voltage electrical or, you know, significant plumbing, you're really just, it seems like an oversimplification and it probably is, but you're, you know, hammering wood stakes into the ground, running fencing in between it, spraying grass, you know,

planting vegetation. Some of them are more permanent, you know, they're called best practices management, BPM. Some of them are permanent installations of, you know, things that are more technical than just planting plants or throwing seeds on the ground. But it's not incredibly complex. It is regulated, but it's not directly licensed, is my understanding, which is a kind of a nice sweet spot. You know, this has to be done. You know, the trade-off on that is that there's lower barriers to entry. But one detail that we haven't covered, which is another one that I usually harp on, is

CAP-X. So these guys have a little over $500,000 a year in CAP-X. They've got, you know, seeding machines. they've got, you know, fleets of pickup trucks. They've got skid steers, you know, trenchers. I mean, they've got some heavy equipment. So this business also doesn't trade for a multiple of that two and a half million of EBIT. The true free cash flow is substantially lower.

And I sent you guys a little snippet of the financials. There's also some kind of quirky things when you start to tease out the difference between EBIT and EBIT that we can get into. So some stuff to like and some stuff to hate. All right. So I actually hate that they don't have the moat around licensing. So if you look at plumbing, electrical and all that stuff, like the fact that there are very few master electricians in the world or master plumbers in the world,

and they have regulatory capture, right, that prevents there from being more of them created. Like, that's a mode around your business. And like, I dislike that that's not in this business. Stuff to also dislike, if you look at the, employee numbers, right? 45 people running equipment. So that's truck drivers and equipment operators that comes back to your EBITDA challenge, the depreciation challenge.

Like you are spending a lot of CAPEX on whatever those things are that those guys are driving unless you're just running equipment, which like that just costs you more. Now, stuff to like when I look at this and has me very excited. And I would definitely look into this business if I wanted to be somewhere in the southeast. They have 13 million in revenue, 13.9 million revenue, one sales guy. one sales guy. So that means that person is basically just an order taker. And that's, that is a sign of a good business is that you're not out doing a bunch of selling. You have customers who seemingly don't have much other choice. They call you, maybe you're a competitor,

and you estimate the job for them and they usually say yes. Like that's, that's a great business. Or, Michael, they have four sales guys, including the one employee and the three owners. And that's what you have to figure out during diligence, right? If the owners are of all the relationships and are doing the sales. Now that's got to be. You know me. I'm the least cynical person on the podcast. No, I'm just kidding. But I'm going to take this as a face value. Like, again, this is stuff you learn when you go dig into the business and think deeply to understand it during your, during your discussions with the owners. But yeah, I do like also that I'm not seeing that the owners are in there being very active, which is the way my buddy, exactly the way my

buddy's company is set up, which is a great business. He's not on the day to day. He's day to day in Colorado at his ranch, which is pretty good. That's the way to do it. The other thing I'd ask during diligence in this business is about kind of labor. Is this a skilled labor? Can you get enough people? I mean, I was driving the other day. I'm up here in New Jersey.

I was driving through New Jersey. And there are help wanted signs like every 100 yards, you know, driving around up here. And you go, you know, is this type of business where I need people who are certified or have a certain skill level or is this just anyone? on the street can hammer in stakes. Yeah. The other thing to pinpoint is just how ridiculously high their gross margins are, which is kind of unheard of in construction.

And even in a lot of service-based businesses, I mean, they've got 74, 75% gross margins. They show that declining somewhat as they get larger. But, I mean, you're still 70 plus percent gross margin, which tells you that, you know, they do have some kind of competitive advantage. They do have some kind of pricing power, but part of that is because there's not a lot in this business that's getting job-costed, right? It's not like plumbing where you've got to buy the hot water heater and all the fittings and all the stuff, and then your guy's time. You know, this is hourly employees installing things that are relatively very, very cheap. It's just something inside the scope of work that the general contractor doesn't want to do, right?

they're focused on building the building. They don't really want to get bogged down in these kind of little miscellaneous things on the job site that are hoops. They just have to jump through. 18% EBITO margin. So that's pretty good, pretty good for the scale of contractor. Yeah, I agree. But also sign that I think all indications so far lead to this is a pretty darn good business. Given what you're saying about the sellers, I'd be very curious if they have a realistic sales price.

So they're like, things are hot. Maybe somebody will pay up. But so you're thinking you would value this business basically on a multiple of free cash flow? Yes. Yep. And I think in all likelihood, what happens is we are giving them evaluation range. They don't like it. It's a crowded, you know, kind of auction-oriented process.

You know, somebody's paying three to four times more than what I would think it's worth. And they go, hey, we like it. you, we have a good relationship with you, you're in our backyard, but we have to go with this higher offer and you just prep them to say, I wish you well. I hope that you get across the finish line. If you don't, then, you know, would love to, you know, would love to be able to pick back up the conversation at any point. Because this, I mean, the sticker shock on this is that the EBIT guy, right, is two and a half million. But the EBIT last year was $215,000. Oh, right? So EBIT jumps a good bit into 2021. It jumps $2 million.

So I would want to press very heavily and figure out, your revenue grew from 9.7 to 3.9, and half of that fell to the bottom line. Did you achieve operating leverage like you've never seen before in your life? Or did something structurally change in the business? But there's no way. Is it possible they bonus depreciated a bunch of stuff last year or like it's like a one time depreciation event? No, because honestly, I mean, the difference in EBIT and EBITDA, so they depreciated about $1.2 million worth of stuff in 2020, but the EBIT versus EBITDA in 2021 is only a $200,000 delta. So it could be that they

bonus depreciated some stuff. It could be that they just, they had a very lean year. They were investing in a ton of growth. I mean, it's hard to tell. But all that to say, a lender is going to look at this. Let's just say it's a four times multiple. They're expecting a four times multiple or a five times multiple probably more than likely on two and a half million. They're thinking, oh, great, 10 to 12.5 million in enterprise value. And in reality, you're looking at a business that probably trades more off of a sub two million dollar earnings number, depending on the adjustments too, which I haven't really dealt into, but they didn't seem agree. and it's probably not going to trade for four to five times. You also are going to have a hard

time getting a lender to get comfortable with how recently the business has grown, how little earnings power they actually had as recently as last year. I think it's going to be a very tricky scenario to get across the finish line unless somebody is willing to throw a significant amount of cash on the balance sheet at close, but they're not going to be paying up to do all those things. I think also when you double click on this business, you understand why they can. caterpillar dealers in the southeast drive fly private jets. And these guys are like, maybe we should sell. Yeah. Yeah. Cool. Well, dude, I think this one's pretty good. It's like most deals, it seems to come down to how much are you going to pay for it.

Yep. Yep. Exactly. Also, I was in an event last night and a listener came up and he told me, why don't you guys do some deals you actually like? So I like this one. We like them sometimes. Yeah, sometimes we like it. That's part of the, I, maybe that's a meta lesson about all of this. Like, you have to look at a lot of, as my grandfather used to say, you got to kiss a lot of frogs to find the prints. Like, that's just the way this works. So on that note, would you guys like to move on to the next deal? Yeah. All right.

I got this one. It is a teaser from a investment bank business broker called Affinity Ventures. So Affinity appears to be out of Albuquerque, New Mexico, I guess. So you can go find this one. It is a digital and direct mail marketing company. So here's some information from the teaser. The company is a digital and direct mail marketing firm. It holds a market leading position in a recession proof and pandemic proof niche industry.

Bill, I heard that everyone is pandemic and recession proof. Did you know that? It's amazing. I want to know where they're selling these recession and pandemic proof badges because I've got to get some for my business. The company is a marquee name in its respective industry and enjoys a customer base that relies on industry-specific expertise. So that's interesting, industry-specific expertise. They may be, meaning that they deal directly.

Maybe they pick a niche. That would be cool. But we'll see what we find out here. All right, the company is looking to leverage its strong position in its industry to develop new service offerings and growth avenues will continue to grow in its native market. The current owners would like to transition the business to a strategic partner or private equity group

who can assist the company in its continued growth initiatives. Cool. When you hear somebody say they want to sell to a strategic partner, our private equity group, that means we want to sell for top dollar. Just so you know, if you're a... That's right. We want a strategic partner who will pay the most money. Correct.

Okay. So if you're a value buyer, I would stop reading right then, basically. I usually stop reading even anyway because that tells me misaligned expectations we want above market. And if this is not the best business I've ever read, there's probably been a pretty big gulf between you and selling. I hear you. All right. Let me tell you more about this business.

We already hate three sentences in. Oh, and the current partners plan to continue their management roles post-clothing. That's great. So, Bill, when you read that sentence, what do you think? Oh, God. So they want a huge check, and then they want to sit around and have you keep paying them a huge check to do nothing. Yeah. It's like, oh, I'm going to overpay to get some lazy ass.

executives who are calling in rich every day? Yeah, that sounds great. I will say, I will say, I like, I like when there's continuity of leadership, right? And I'm okay if it's the seller. It just depends on what are their expectations. And what do they want of a partner, right? Are they looking for a partner? Like, if they're a relatively passive shareholder and they're trying to tell you, hey, you can be a relatively passive shareholder, like, you would want to, you would want to ask certain questions. But also, if they worked 80 hours a week and they're like, yeah, I'm fine. I just want to keep working 80 hours a week. I would have a very different set of questions. But to me, I wouldn't dismiss the fact that they're saying they want to continue in

their management roles. The bigger issue is the second order consequences of, I probably won't run this business the way you've been running it. Are you sure you're going to be okay when we start making changes? And let's get very clear about what those changes might look like ahead of time. Absolutely. Yep. And also, I would never buy a business. I love continuity of leadership. I agree with you, Mills. But if they wanted to stay on and not roll any equity, I would also have a huge problem with that. Oh, so yeah, you were working eight hours a week. You still want to be CEO, but you want a huge check. And then you're trying to tell me you're going to work just as hard with no skin in the game. I don't think so. So, you know, I would want them to roll a huge amount of

equity, you know, 20 to 40 percent of the business. Yeah, they have to have enough skin in the game for sure. The token kind of, you know, you'll hear a ton of brokers say like, yeah, yeah, they love, love the idea of rolling equity. There's two owners. They each want to roll 5%. It's like, you know, that's not enough. That's not enough risk roll forward. All right, let me finish talking about this one. And then we can continue being the being it actually gets better as we go. So this is what I'm looking forward to. All right. Company highlights. This is some reiteration. I repeat. Provable ongoing and future growth, recession proof, pandemic proof. They keep putting recession proof and pandemic proof in bold, which scares me. Like,

Don't do that. Reliable, repeating, and continuously widening revenue cycle? What does that mean? I don't know. Reliable, repeating, and continuously widening revenue cycle. I would think, I mean, good would be narrowing. I want a short revenue. Yeah, you want something, I mean, the perfect world is somebody pays you well in advance of delivering your services, because then your customers are funding your business for you. But widening typically means, like, okay, I'm giving somebody net 90 terms. to pay me and I have to upfront the cash to deliver it and then they pay me later, hopefully. That's bad. So F-minus for the broker on saying that, whatever that means. Okay, dependable repeat customer base with highly specialized needs. That's good.

High cash flow with minimal DSO and a bad debt ratio below 1%. What does DSO stand for? It's sales outstanding. It's receivables. A.R. Okay. Account receivable. Very low capital expense.

So that's good. Golly. And then they, this teaser goes. and says the safe stuff again for the third time. Guys, I actually think that they're right. This business might be recession-proof and pandemic-proof because a recession and a pandemic would make the variability of their revenue and earnings look smooth and predictable.

Yeah. Well, here, let me finish telling people what it is because I think you've read the teaser and they have it. So product and services, they do direct mail, comprehensive digital ad buying, email, programmatic ad buying, OTT slash CTV, so they do, they'll do ad buying for folks,

so they do agency work. OTT is over the top streaming, and CTV is cable TV. So they'll do agency work for them there, web design programming and management, social media management, search engine optimization, market consulting,

and reputation management. So this is an all in one, full service, marketing agency and delivery company. My eyes almost exploded when I was like, am I reading this correctly? This income statement is insanity. So year end 2020, they did $105 million in top line revenue.

Their cost of goods was $68 million. So revenue was $105 million. Cogs was $68 million. Gross profits were $37 million. Their expenses to do all of that were $8 million. So that means the N-O-I, the net operating income, or the net ordinary income, they say here, was $29 million. Then they have some other income, which they subtracted.

Other income expenses. So anyway, $105 million in revenue, cogs of $68 million, expenses of about $8 million, and adjusted EBITDA was $29 million in 2020. How did they do in 2019, Michael? 2019, they did $15 million top line. Cogs was $10 million. Wait a second. Okay.

So let me just make sure everybody's following. Yeah, Michael, you must not have looked back here. This is insane. They go from 17, in 2017, they have 15 million in sales. 2018, it's 51 million in sales. 2019, it's 15 million in sales. Then it's 105, and then they think next year is 31. I thought that, so like when I was reading it, I thought those were quarterly numbers adding up to the urine. So I was just giving you the urine. But you're totally right. So, okay, so let me just start this over again, because this is the most insane thing I've ever seen. Okay, 2017, they did 15 million in revenue, made two and a half million adjust to Dibada.

2018, they did 52 million in revenue. They made $10 million. dollars. 2019, they did $15 million again. They lost a million dollars. 2020, they did $105 million in revenue. They made $30 million. And then this year, they project to do $31 million and make $5 million. So the revenue is gone $15.51, $1,505.31.

What the hell happened? I don't know. Well, the balls to be selling after, you think you're going to put up, you just put up $105 million. in last year, you think you're going to put up 31 million this year and this is the year you want to sell? If you're the advisor on this, you have to get out in front of this amount of volatility right out of the gate. And you may not be able to disclose it that much, but you've got to own it right out of the gate. And instead, there's one little line in here that says, even odd year revenue inconsistency is industry driven and will be detailed to inquiring party upon signing an NDA.

I would be willing to bet that this business does something in the political space. So election year, it was 2020. There was a midterm election in 2018, right? So the off years, the odd years are drastically lower, just infantestimally lower. I bet it has something to do with politics. That is a great call, Mills. I bet you're right. And they can't say that out of the gate, but when you sign me,

the NDA, it's going to smack you in the face. Holy cow. Bill, I don't know what you're thinking right now, but Mills gets inside of the day for that. Podcasts co-ho, well, well done, I agree. Thanks, guys. I'm probably, I'm probably way off the mark and it has nothing to do with that, but let's just leave it at, I had one little glimmer of an insight. Well, Bill, Bill, I don't know if you noticed, but Mills has not had his camera on all day today,

and I think it's because he doesn't want us talking about his beard. The bearded oracle of South Carolina. I'm just dropping knowledge through these hairs on my face. Nobody can stop me. It's awesome. Yep. Yeah, wow. So this is probably, we're guessing, a political digital marketing agency.

And they ramp up dramatically in the election years, 18 and 20. And then they scale down dramatically because they stop spending. Although what's interesting, if in fact, that's what's going on here. They look like they do about 15 million of top line in the non-election years and then either 50 or 100 million in the election years. But this year, a non-election year, they think they're going to do 31, which is actually double their typical off year. So I think that's kind of interesting. If our thesis is right that this is politically driven, there's two things that are interesting about it. One, you do have the background of all kind of the local elections and, you know,

people wanted to get mailers and all that kind of stuff for school board elections, all that kind of stuff. People are spending big money on those things now. Like, I've seen them locally. People drop 50 grand on these campaigns for local school board. But the second thing to think about it from a like buyer, buyer company fit or buyer target fit is my guess is this is, you know, you either pick one side. you're either on the liberal democratic side or you're on the conservative side when you're a

company like this and you don't cross-pollinate. They definitely don't. They definitely don't. They never do. It's always you pick red or blue. So I think this is probably a blue company given it's in Albuquerque. That's just my two cents. I've seen some of these before and it's, I mean, it's very relationship driven, but yeah, you don't cross the aisle. And you can be kind of in favor with the party or you can fall out of favor.

And it can be very, very painful. So, you know, you have, I think this is a great example, if our thesis is right, which I think it is, you have this kind of indirect customer concentration, right? Where you look at it at first, and we talked about it in the first deal, it's one of those things you look at and you have to be worried about the customer concentration. Here you look at it at first, and it's not going to appear to be very customer concentrated, right? You're going to have the Republican or the Democratic Party of Portland, Oregon paying you, right, and all these guys. But in the end, you have to worry about they're actually much more. concentrated than it looks at first glance. Yeah, because they all talk and it's all similar candidates.

And if you do great or do poorly for one of them, you're going to lose all your other customers too. Well, and they're all using the same consultants, right? Like every, a lot of the folks, you know, you figure out what. Yeah, the operatives. Yeah. Political operatives. What's interesting, though, is I'd be very, very curious to see this is probably a ridiculously

lean organization at the top, you know? I mean, I'd be willing to bet they don't really have any salespeople. They have a handful of project managers, but they're subbing out all of the stuff. All of the actual services get subbed out. So, I mean, I would not be surprised with $105 million in revenue if they had less than 30 employees. Wow. Good living if you can find it. All right.

Man. Yep. I mean, I think this is one of those businesses. And you seem a fair bit where, like, good for you guys who own this. like because you made $30 million last year. But it's really hard to monetize any equity value in this business also because, you know, it's a people business. It's entirely consulting. Like maybe it's only, you know, 30 people or whatever, you know, but there's not a ton of brand there. You know, that's that's transferable, and especially in politics, if this is politics. Holy cow, our relationships,

everything. So that's why you would definitely need the management to stay on. As they mentioned at the top, I think they've probably realized that this thing is not really transferable unless they stay on and continue to leverage their relationship. So, you know, this, I put this in the bucket of good for you guys. Like, you've made a really nice living. Like, this is probably the business that just gets wound down whenever they're done. It's just very hard to transfer. And I hate to break it to you, but zero, absolutely zero private equity firms will buy a business like this. So your idea of, you know, at the intro of, you know, at the intro of.

paragraph of we want to find a strategic partner or private equity group. I mean, the buyer for this is somebody who has more money than they know what to do with and they already are very politically active. And they're like, sure. I mean, I'm spending all this money on donations anyways. I might as well, you know, own part of it. Just go to George Soros's family office. You got it covered Slovakia. Exactly. Yeah. Or maybe it's an add on to something that's adjacent in the political space, you know, in this not a world I know very well, but, you know, if you were kind of, kind of sort of already doing this or spending a lot of money with a firm like this, you know, bolted on. I did, just anecdotally, I heard a talk from a lower middle market

I banker last week, and somebody asked him, what's the hottest niche right now? And he said digital marketing agencies. He said, like, they're the hot, the new hotness right now. Everybody wants to buy one. And if he knows somebody, he wants to sell. one, like, talk to him because he thinks he can, he can flip him really fast. So that's insane because I could start one in two months with a bunch of upworkers and pick up, you know, a million dollars of, or three million dollars of revenue and sell it for probably two extra revenue, I guess. You're saying I should do that. A bunch of $20 an hour upworkers, train them on digital marketing and flip it. There's a lot of, better than, better than Amazon,

FBA. Yeah. Yeah. Oh, man. Everybody's getting rich on Amazon. on and I'm not. That's all I think. I think we did great this week. I give us a 10 out of 10. And Mills killed it today. So well done, Mills. To be fair, you always give us a 10 out of 10, Michael. That's right.

One day, Michael's going to be like, you know what, guys, that was. Guys, that was really disappointing. And bring your A game next week. Yeah. I mean, it is what it is. We're so optimistic. I love it. Well, I mean, what should we do? Like if we don't think we're bringing it and how's anybody else going to believe we're bringing

it if we don't tell them we do. That's true. All right. Well, this is awesome. We'll get it to edit it and get it out to the wonderful super niche world of people that are considering buying businesses. So great job, you guys. Fun as always. All right.

Thanks. See you next week.